The Canadian Bar Association is the latest to come out with a comprehensive report advocating fundamental change in the structure and management of law firms and the delivery of legal services. Jordan Furling has provided a useful summary for those, like me, who do not have time to read the entire document.
In line with trends in other countries, the report recommends that there can be non-legal ownership of law firms (though it goes further in this than is common practice today). It therefore also envisages that such firms will offer a wider range of services – which is again the case in some other countries. And it is this area of what constitutes a legal or non-legal service that especially interests me.
The report itself acknowledges a certain greyness, yet persists with the view that ‘non-lawyers’ need to be supervised. It has relaxed the requirement for supervision from ‘direct control’ (which implies detailed review of work) to one of ‘effective control’ (which may be taken to reflect a need for more general oversight and governance standards).
The field of contracts is a perfect example of the dilemma. It could be argued that since a contract is a legal instrument, a lawyer should ‘directly or effectively’ control its creation. But in reality, they do not perform such a task. In most cases, there are multiple participants in contract creation and frequently key documents are prepared and used without any legal intervention or review – for example, service level agreements, product specifications, statements of work. So what elements of a contract – or its negotiation – constitute a protected ‘legal service’?
Moving to the future, we see law firms (and in-house lawyers) increasingly expand their field of operations. Indeed, there is growing interest in taking on the wider ‘business’ aspects of contract development and then potentially adding services such as post-signature data extraction or even full contract management. So does that now become a ‘legal service’? Are we seeing job scope creep here?
With that expansion, there are obvious areas for contention, confusion and re-definition of required process and controls. On one side, there is the question of how much lawyers will attempt to expand the definition of things that constitute a ‘legal service’. But on the other side, I believe a more fundamental question is ‘what qualifies lawyers to make business judgments?’ While many lawyers are talented business-people, this is not intrinsic to their knowledge base or skills. There are many aspects of business process or commercial policy to which the average lawyer is blind. Many cannot even answer fundamental questions, such as what makes a specific contract or term ‘fit for purpose’.
So as they stray from traditional activities into a broadened role, who is going to ensure ‘effective control’ over lawyers?
Many contracts, procurement and legal staff want to increase their influence. Many complain about not being involved earlier, or not being part of the ‘core team’.
Research has shown that one key element of being respected and included is to bring incremental knowledge and connections that others do not have. That is one aspect of ‘professionalism’ – being connected to a professional network, having access to a respected body of knowledge.
But that is not enough. Many contract managers and lawyers are knowledgeable and well connected, yet still do not feel these attributes are fully recognized. As Cendrine Marrouat points out in a recent blog, professionalism is also about showing care and respect for your audience, especially in how you communicate. If we appear arrogant, or dismissive, if we fail to pay attention to their views, it should not surprise us that we are not included – because our behaviour is then not inclusive. Key to being wanted is the sense that we listen, ask questions, take time to appreciate the views of others and why they hold them. We need also to explain the rationale for our position based on what we know the other party’s interests to be.
For example, if we want to promote a new contract management system, our message to the CFO will most likely promote the bottom-lime impacts it can have, as well as the improvements in data flows. The General Counsel will like the idea of being able to access contracts reliably and to improve the quality of insight and governance. But these benefits are not going to have much appeal to the head of Sales. They will most likely interpret those ‘benefits’ as meaning increased control over the sales force – and greater control equals less business. So with Sales the message has to be one of more empowerment, easier access to standard forms and agreements, speeding up of cycle times.
Ultimately, our success is driven not solely by what we know, but also by how we communicate that knowledge to others. But if we don’t take time to learn, then our knowledge is also limited.
I thought I would share extracts from an internal company report that I just read. I think it will resonate with many.
“Contract Management and negotiation skills and knowledge are increasingly important. Our need to be more flexible in the market, to accept and manage higher risks, to build new solutions and commitment capabilities, is resulting in many groups within the Corporation developing or negotiating contracts.
We have identified approximately 800 people in more than 20 organizational groups whose primary role is contract development or negotiation. There has been no consistent training to help them perform their task. In addition, there are many more employees with either contract or negotiation skills defined as a component of their job and skill requirements (e.g. Project Managers, Procurement, Sales).
Currently, each group develops its own training materials (if any), typically without reference to any other group. Not only is this inefficient (high cost, limited re-use, frequent redundancy), it also creates process inconsistency and organizational conflict. Groups define overlapping roles, they are unaware of tools or databases developed or used by others, they consider aspects of Corporate practice or policy to be optional. To date, we have identified more than 40 different training programs, delivered by a similar number of providers.
This confusion inevitably spreads to the market, where customers and suppliers suffer from inconsistent approaches to the way our contracts are delivered and negotiated, often encountering more than one group involved in the same bid. This is especially the case in more complex, high value business, which typically requires our organization to provide integrated projects or solutions.
Moving forward, the roll-out of consistent education and training modules will be critical to competitiveness and customer satisfaction. To ensure simplification and to maintain consistency, these modules must be available to all relevant groups, irrespective of geography or function.”
The report goes on to describe the steps needed to undertake development and ensure adoption ….
All of this may sound very familiar to many of today’s contract and commercial practitioners, who face similar fragmentation in their procedures and authorities.
This report was written 20 years ago, within a Corporation that was a leader in global reengineering of its contracting process. The improvements supported a major turn-round in its market performance, transforming contracts from a liability into an asset, especially in its growing services and solutions business.
Twenty years on, is your organization still struggling to make these changes?
A key reason for IACCM’s existence is to offer this consistency of organizational training, skills development and certification. Visit www.iaccm.com for details.
An IACCM member asked me for a view on lean contracting – what is it, what impact does it have?
My thoughts on this relate to ‘lean’ in the context of quality – and therefore overall efficiency through error-free activity. To me, that means we can think of ‘lean’ in a number of contexts when it comes to contracts: I believe those responsible for contracts and contracting should be asking these questions:
- Are individual contracts produced and managed in an efficient manner?
- Is the overall contracting process operating efficiently and tackling repetitive quality issues / defects?
- Is the contracting process being used effectively to test the quality of broader business capabilities and their alignment with business or market needs?
For item 1), the parameters may be quite narrow, in the sense of measuring cycle time or compliance. In that regard, something could be ‘lean’, but not necessarily high quality (‘lean’ does not automatically translate to ‘fit for purpose’ – my terms and conditions may be losing me business, but the process through which the contract is created and delivered might be very efficient).
Item 2) should begin to offer more tangible ‘quality’ indicators, because it would start to look at portfolio performance and should include deeper analysis of the effectiveness of contracts. For example, this analysis might reveal you are handling a lot of claims or disputes or a high volume of invoicing errors. The process through which these are resolved could be very effective and the contracts team may consider they are doing a good job – but that is because they do not look at the business consequence of their ‘lean contract’. So item 2) presumes that there is greater consideration of the effect of the contract on the business.
Item 3) almost turns this on its head. It sees contracts as a reflection of business policy, process and practices and uses the contract to test whether business capabilities reflect market needs and values. For example, the market might want truly global commitments, but the internal measurement and management system might frustrate that commitment. This is immediately visible in the nature of the contracts that are offered to the market. The contract becomes a tension point and can be used to highlight such issues to management. In that sense, the contract is a source of lean thinking and tackles the frustrations that otherwise people spend time trying to work around.
What are your experiences of lean in the context of contracts?
Many organizations claim to have a process for contract management, yet this claim often does not stand up to scrutiny. This becomes evident as soon as anyone starts to ask questions about process efficiency or effectiveness; quite simply, there is no data because ‘the process’ lacks an owner and is typically quite fragmented in its operation and oversight.
This issue is becoming more evident as executives awaken to the importance that contract management has in the delivery of business results. As they ask more questions, it is rapidly obvious that no one has answers and no one actually feels accountable (or capable) of providing them. Examples range from wanting to know how effective the contracting process is in handling business risks; what types of contract should be deployed to optimize business results; how the contracts and contracting process compare with those of competitors …. the list goes on and right now, very few organizations have answers.
Of course, some turn to IACCM and we are able to assist with broad industry information. In a growing number of cases, we are asked to conduct specific research or to advise on the best way to improve the process. But in many cases, the challenge is much bigger. Executives are calling for ‘increased competence’ in contracting or commercial management – and that is a relatively undefined concept. When responsibilities are fragmented and business units see the process as somewhat optional, when process steps lack definitive guidance on timing and when there is little data flowing on actual operation, it is very hard for anyone to step forward and take accountability.
Major improvements depend upon ownership. And that ownership has to be at a sufficiently senior level that the broader organization takes notice. This does not imply that any specific individual or function has unilateral decision rights – there are many stakeholders involved in contracting (and this is a key reason for the problems). However, it does mean that there is a focal point for the efficiency and effectiveness of the contract management lifecycle. With that ownership comes a more holistic view that starts to yield meaningful data on performance and a focal point for driving continuous update and improvement.
A process that lacks data is not really a process at all. It is a set of loosely connected activities that may or may not operate in the organizational interest. Today, contract management far too often falls into the latter category.
As buyers, we probably all wish that suppliers were more accountable for their sales practices and commitments. Whether it is the promises made when we buy a new car or the cost and timing of a house extension, most of us have suffered from the frustration of dealing with sales people who seem somewhat untroubled by truth or accuracy.
In the world of business, buyers often try to drive performance through onerous risk terms, ranging from liabilities, to liquidated damages, to rights of termination. But in general, this approach does not work well. So now we appear to be moving to a new era of control, requiring suppliers to sign up to even more specific undertakings of integrity.
As in the past, Government seems to be the driver of change. Exasperated by repeated performance exposures, several Governments are exploring the idea of forcing senior management in key suppliers to confirm that their internal processes have included thorough validation of contract commitments and their capability to perform.
In theory, this capability assurance is a role that should be performed by Contract or Commercial Managers. In practice, it often is not. Commercial staff may be involved too late; they may lack the skills or authority to mount effective challenge; their concerns are ignored or overridden. But soon that may be changing, with the creation of an integrated ‘Capability Assessment function’. Quite where that leaves the contracts or commercial manager remains to be seen. Some may be at the forefront, identifying and leading the necessary changes within the business. Others may simply be swept aside or absorbed by this new assessment and sign-off group.
The world is changing and the days of the commission-based sales organization are numbered. Business integrity will continue to advance and steadily will become a pre-requisite for winning significant contracts.
“What should I read into the trend from customers to specify that they want an outcome-based contract. Is this just another way they want to load more risk onto the supplier?”
That was the question I faced when meeting with the Commercial Director for a large, international service provider this week. His experience of ‘outcome-based’ has not been good. He cited examples where the customer has been quite specific about the work they want done, but then added a clause that essentially offers them carte-blanche to enforce on-going rework at no cost. They specify requirements, but essentially say that if the outcome they achieve is not in line with whatever they may then need, the supplier must undertake work to deliver that outcome.
Clearly, this is indeed an unacceptable burden of risk. Essentially it abdicating responsibility for defining business needs and saying “I don’t really know what I want, but give me xyz and if I then decide I really wanted abc, you will do the conversion work for free”.
Given the speed of change in today’s markets and technologies, it is quite understandable that customers will struggle to define precise or static requirements. Indeed, in many cases, a key requirement is flexibility and change. It is not reasonable to expect that a supplier can absorb the consequence of that uncertainty. This situation demands a different approach to contracting and contract management.
In IACCM’s view, the first requirement is to undertake an honest and thorough analysis of the potential sources of uncertainty and to assess their severity and impact. We have developed a standard questionnaire to assist in this. Based on those findings, the parties need to review the right contract model – for example, the blending of performance-based, outcome-based or agile. This also predicts the level of collaboration and shared responsibility that will be appropriate.
However, suppliers are not absolved from responsibility in addressing today’s business environment. Few have worked on developing appropriate contract models or assessing the shift in internal competencies needed to negotiate or manage such agreements. Equally, they are reluctant to address the internal measurement and motivation systems that incentivize acceptance of unrealistic commitments and unaffordable risks.
In addition to the questionnaire, IACCM has developed new approaches to negotiation and guidance on producing relational contracts through either internal or multi-party workshops.
Without decisive action, suppliers are indeed right to fear many outcome-based contracts and the risks associated with them. But the answer is to help educate and develop the market because the forces that are driving this need for change will not go away. Ignoring them is an even bigger risk that responding with the wrong solution.